April 2011 - Centre for Civil Society - University of KwaZulu-Natal

ole that the government plays in the economy’s free market, then pause
to reflect that all our wages are, at root, politically determined.
Following the 2008 financial crisis, the prices of loans (if you can get one
or if you already have a variable rate loan) have become a lot lower in
many countries thanks to the continuous slashing of interest rates. Was
that because suddenly people didn’t want loans and the banks needed to
lower their prices to shift them? No, it was the result of political decisions
to boost demand by cutting interest rates. Even in normal times, interest
rates are set in most countries by the central bank, which means that
political considerations creep in. In other words, interest rates are also
determined by politics.
If wages and interest rates are (to a significant extent) politically
determined, then all the other prices are politically determined, as they
affect all other prices.
Is free trade fair?
We see a regulation when we don’t endorse the moral values behind it.
The 19th-century high-tariff restriction on free trade by the U.S. federal
government outraged slave-owners, who at the same time saw nothing
wrong with trading people in a free market. To those who believed that
people can be owned, banning trade in slaves was objectionable in the
same way as restricting trade in manufactured goods. Korean shopkeepers
of the 1980s would probably have thought the requirement for
"unconditional return" to be an unfairly burdensome government regulation
restricting market freedom.
This clash of values also lies behind the contemporary debate on free trade
vs. fair trade. Many Americans believe that China is engaged in
international trade that may be free but is not fair. In their view, by
paying workers unacceptably low wages and making them work in
inhumane conditions, China competes unfairly. The Chinese, in turn, can
riposte that it is unacceptable that rich countries, while advocating free
trade, try to impose artificial barriers to China’s exports by attempting to
restrict the import of "sweatshop" products. They find it unjust to be
prevented from exploiting the only resource they have in greatest
abundance – cheap labor.
Of course, the difficulty here is that there is no objective way to define
"unacceptably low wages" or "inhumane working conditions." With the huge
international gaps that exist in the level of economic development and
living standards, it is natural that what is a starvation wage in the U.S. is a
handsome wage in China (the average being 10 per cent that of the U.S.)
and a fortune in India (the average being 2 per cent that of the U.S.)
Indeed, most fair-trade-minded Americans would not have bought things
made by their own grandfathers, who worked extremely long hours under
inhumane conditions. Until the beginning of the twentieth century, the
average work week in the U.S. was around 60 hours. At the time (in 1905,
to be more precise), it was a country in which the Supreme Court declared
unconstitutional a New York state law limiting the working days of bakers
to 10 hours, on the grounds that it "deprived the baker of the liberty of
working as long as he wished."
Thus seen, the debate about fair trade is essentially about moral values
and political decisions, and not economics in the usual sense. Even though
it is about an economic issue, it is not something economists with their
technical tool kits are particularly well equipped to rule on.
All this does not mean that we need to take a relativist position and fail to